Carbon trades over €100/tonne for December 2023

22 February 2023

From a pricing perspective yesterday say further declines.

As we approach the anniversary of the Russian invasion of Ukraine, the EU’s next steps in terms of security of supply and ensuring there is sufficient gas in storage for the coming winter are taking shape. The EU’s joint purchasing natural gas platform, run by Prisma, is expected to hold its first auction in May with deliveries expected in July. The EU has set a target of 13 bcm to be traded on the platform over the course of a year with member states obliged to aggregate volumes equivalent to 15% of their storage gilling obligations. From a pricing perspective yesterday say further declines as all contract on the curve continued to trade lower. This was despite the fact that temperatures are forecast to below seasonal norm for the beginning of March. The prompt market saw some gains as wind generated power was expected to fall in the UK over the coming day boosting demand for gas.

Day ahead power made minor gains.

Day ahead power made minor gains with wind penetration expected to fall over the coming days. On the curve, power contracts all made losses day on day as the contracts were influenced by price movements on the NBP gas market. The fall on the power market was capped due to the support originating from the strong carbon markets with December 2023 trading over €100/tonne. Determined buyers caused the front December EUAs to soar above €100/tonne, marking the first time in the 18-year history of the European market. Some traders are worried that the current EUA prices above €100 are not in line with the market fundamentals and are concerned for how long it can be supported.

 1% decline in Brent crude oil during a tumultuous session

Despite supply restrictions, concerns about the worldwide economic slowdown led to a more than 1% decline in Brent crude oil during a tumultuous session on Tuesday, causing investors to take advantage of the previous day’s profits. The market’s primary interest is on the release of the minutes from the most recent U.S. Federal Reserve meeting, set for Wednesday. These minutes are a concern due to recent data indicating a greater possibility of extended higher interest rates, while from a positive perspective a drop in unemployment benefit claims and growth in retail sales are expected to be included. The prospect of higher interest rates fed into the stronger dollar, which for non-US currency holders makes oil more expensive, which has weighed on the front month Brent as it closed at $83.05 a barrel.

Trading on the prompt is quiet this morning

Trading on the prompt is quiet this morning, with no trades completed or bid or offers on screen at the time of writing. Near curve contracts are retracing some of yesterday’s losses with March and April both tracking higher compared to yesterday’s close, but at 122.75p and 121.39p are lower than Monday’s assessment. The summer contract, the furthest dated contract to trade so far, has also increased in early trading. Carbon prices have retreated somewhat, with December 2023 back below €100/tonne, last traded at €98.62. Yesterday’s concerns regarding interest rates have continued into this morning with Brent oil trading lower again at $81.87, near the low of the day so far.
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